Carriers Expecting Continued Losses, Boosting Capacity

Delta Air Lines yesterday joined American and Continental airlines in forecasting first-quarter losses in filings with the Securities and Exchange Commission. Delta preliminarily pegged its first-quarter losses, excluding unusual items and the impact of its recent agency commission action, between $350 million and $380 million. Earlier, American said its first-quarter loss will be "sizable" and that a full-year loss is likely. Continental, which also has not generated positive cash flow from operations since Sept. 11, anticipates a "significant" first-quarter loss and losses for the fourth quarter and full year.

UBS Warburg analyst Sam Buttrick, earlier this month, predicted a $3.5 billion industry loss for 2002. "The industry could post modest profits in 2003, with some companies profitable and others still loss-making," he said in a research report to investors. "However, in any reasonable scenario, 2004 remains the first year in which earnings could be good."

Some industry observers said profitability may further be challenged by carriers' desire to restore capacity. Available seat miles in February continued to edge higher but remained 11 percent to 19 percent below 2001 levels at the six largest airlines. Alaska and Southwest were the only majors to increase capacity levels year over year, 3 percent and 4.5 percent, respectively.

However, many airlines have responded to warming travel numbers with announcements of added capacity by the summer months. American is planning to boost flight frequencies from its Dallas/Ft. Worth hub and United Airlines is bringing its Chicago O'Hare flight schedule back to near pre-Sept. 11 levels, focusing primarily on business destinations. United's overall capacity still will hover 16 percent below prior levels. US Airways, in response to loosening restrictions from the U.S. Department of Transportation, is significantly boosting service out of Reagan Washington National Airport and also adding transatlantic services. Northwest by summer will again stretch out Memphis hub flights into the evening, restoring about 25 percent of that traffic and allowing for more connections, though the airline last week warned it might cut capacity in the second half of this year.

Delta today said it expects capacity in the first quarter to be 11 percent lower than first-quarter 2001; the airline's traffic increase this year has thus far been concentrated within its Atlantic Southeast Airlines subsidiary, which saw February traffic numbers top those of February 2001.